Meanwhile, In Iraq...

Though it has not received the same amount of media attention as Syria and Egypt, Barclays points out that Iraq has witnessed a relentless wave of bombings and shootings this year and the risks are rising of a return to serious sectarian strife and widespread civil unrest. This is raising the risk of serious sectarian strife and widespread civil unrest, with implications for oil production, exports, and regime stability.

Via Barclays,

On Monday, at least 45 people were killed and hundreds wounded in a string of attacks across the country. It was the third straight day of large-scale, multiple bombings, including a suicide attack at an elementary school in the northern city of Tel Afar on Sunday that killed at least a dozen children. The violence has claimed more than 6,000 lives this year, the highest yearly death toll in five years. Iraq’s Al Qaeda affiliate, the Islamic State of Iraq and the Levant, has claimed responsibility for the lion’s share of the attacks this year and the majority of victims have been Shiite civilians, with places of worship and shopping areas frequently targeted. Leading Iraq experts contend that the goal of Al Qaeda and other Sunni insurgent groups is to draw Shiite militia groups from the sidelines and spark a destabilizing cycle of retaliatory sectarian killings, similar to the events that occurred following the bombing of the Samarra Shrine in 2006. The violent aftermath of that bombing helped set the stage for the 2006-07 civil war.

So far, the radical Shiite cleric Moqtada al-Sadr has refrained from remobilizing his Mahdi army militia, which was responsible for some of the worst acts of violence directed towards Sunni communities in Southern Iraq during the civil war. Nonetheless, news reports indicate that other Shiite militia groups, such as Asaib al-Haq, are rearming and there have been several recent bombings targeting Sunnis (New York Times, September 27, 2013). An increase in such retaliatory attacks could be a key warning sign that the situation is devolving along the lines of the 2006-07 conflict.

As we have mentioned before, the war in neighboring Syria is negatively impacting the security situation in Iraq. Syria has deepened Iraq’s sectarian fault lines, with Prime Minister Maliki’s mainly Shiite government widely seen as siding with the Assad regime and Iraq’s Sunni opposition leaders with the Syrian rebels. Syria has also emerged as a key base for Al Qaeda extremists to launch attacks in Iraq. Hence, we do not believe that Iraq’s security situation will materially improve as long as the Syrian conflict continues to rage on. Next year’s parliamentary polls, tentatively scheduled for April, could further inflame sectarian tensions. Prime Minister Maliki was widely accused of waging a political witch hunt against rival Sunni politicians in the run up and in the aftermath of the controversial 2010 polls. He has also been heavily criticized by his opponents for failing to honor the terms of the power-sharing agreement that allowed him to secure a second term in office despite the fact that his coalition did not win the most seats in parliament. Maliki is widely expected to seek a third term following the August ruling by the Iraqi Supreme Court abolishing term limits.

While civilians have been the primary target of the insurgent violence, Iraq’s energy infrastructure has not been entirely spared. The Kirkuk-Ceyhan pipeline has been repeatedly bombed and senior Iraqi officials acknowledge that attacks will likely continue because the pipeline runs through insurgent strongholds. In contrast, the southern energy facilities have fared much better to date. Though there was a port bombing in Umm Qasr in August and a bombing of a mosque in the Daura refinery complex in Baghdad in September, the violence has not disrupted any oil supplies from the south.

However, the recent bombings in Basra, the capital of the oil region, show that the south is not beyond the geographical reach of extremist groups and hence targeting of southern facility cannot be entirely discounted, in our view.

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Over the next two years, a water shortage could stoke the potential for unrest in southern Iraq. In the medium term, the government is likely to face a dilemma on ensuring adequate supplies of water to Iraq’s southern residents while also allowing for increased water for improved oil recovery to meet production targets. As oil and power sector water needs increase, the government will have to juggle the water requirements of restive citizens in Basra, which has in the past experienced protests during extensive power outages.